Who is a loan co-borrower

How a co-borrower differs from a guarantor

The difference between a borrower and a guarantor lies in their rights and obligations. A guarantor is a guarantee that the obligations to the bank will be fulfilled in full. That is, in the event of the borrower's death, bankruptcy, or simply unwillingness to pay the loan, the debt will fall squarely on the guarantor (of course, only by court decision). At the same time, they have no rights to the borrower's property (for example, in the case of a mortgage or car loan). And they can only recover their costs associated with paying off someone else's debt through a court decision.

In the case of a co-borrower, everything is much simpler. They assume obligations and rights on an equal footing with the primary borrower. That is, in the event of even the slightest payment delays, the bank may demand loan repayment from the co-borrower. At the same time, unlike a guarantor, the second borrower can become the owner or co-owner of the mortgaged property or vehicle, if it is a car loan.

When a co-borrower is required for a loan

A joint borrower is required if the primary borrower does not fully meet the bank's requirements. Specifically, the lender may insist on including a co-borrower in the loan agreement in the following situations:

1. When the bank client's income is insufficient to fulfill loan obligations. However, if there is a co-borrower, their earnings are also taken into account. That is, the client will be able to get a larger amount than their salary allows.
2. The primary borrower is entirely unemployed and unable to make loan payments. In this case, the co-borrower serves as a guarantee that the loan will be repaid in full according to the established payment schedule.
3. Having a joint borrower is also mandatory when taking out a mortgage. For example, when it comes to a husband and wife.

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Rights and obligations of a co-borrower

The obligations of a joint borrower are outlined in Article 323 of the Civil Code of the Russian Federation "Creditor's Rights in Joint and Several Liability". According to it, if there is a co-borrower, the bank has the right to demand the fulfillment of obligations under the loan agreement from all debtors jointly or from any of them. The exact extent to which the co-borrower will bear responsibility before the lender must be recorded in the loan agreement:

1. Equally with the primary borrower. That is, the entire amount of the monthly payment must be divided equally between both debtors.
2. If the main borrower fails to fulfill loan obligations.
3. The co-borrower fulfills loan obligations up to a certain date, after which all payments are made only by the primary borrower.

In practice, the second scheme is used more often, when the third party to the agreement acts as a guarantor for the full repayment of the debt. By the way, the co-borrower remains obligated to the bank until the debt is paid in full (it does not matter who fulfills the loan obligations).

Now let's move on to rights. Regardless of what becomes the object of the loan (apartment, car, land plot, etc.), the co-borrower can count on exactly half of the credit property. In addition, they gain the right to claim a tax deduction and a deduction on paid interest. The only exception is lending subject to a prenuptial agreement, which may contain a clause on a different distribution of property.

Requirements for co-borrowers

A co-borrower is the same borrower on an equal footing with the primary borrower, so the bank's requirements for them will be the same:

• hold citizenship of the Russian Federation;
• having permanent registration at the location of the lending bank;
• age from 21 to 75 years;
• work experience at the last place of employment of at least three months;
• ability to confirm income.

Can a co-borrower renounce their obligations

It happens that a co-borrower for some reason can no longer fulfill loan obligations or simply has no desire to do so. In this case, terminating the agreement unilaterally will not work. Any changes to the terms of the loan agreement (including the withdrawal of the co-borrower from it) must be agreed upon with both the bank and the primary borrower. Otherwise, termination of the agreement will have to be achieved through the court.

If all parties agree to change the terms, the co-borrower's official refusal of obligations will look as follows:

1. Signing an addendum to the main agreement, which specifies the fact of the co-borrower's withdrawal from the agreement.
2. The borrower, in turn, will need to find a new co-borrower and conclude a new loan agreement with them.

It is also possible to divide the obligations between the borrower and the co-borrower, thereby executing two new mortgage agreements with the bank that exclude legal relations between the two loan recipients.

Another situation that involves a co-borrower leaving the loan agreement is the dissolution of marriage between spouses. In this case, the bank's approval for the division of property will be required, according to which one party will assume all obligations under the loan, while the second will lose ownership rights to the mortgaged real estate (or car, in the case of an auto loan).

What pitfalls may await a co-borrower

Bearing joint and several liability with the primary borrower under a loan agreement is a serious step. Therefore, before agreeing to it, we advise you to carefully weigh all the pros and cons, keeping potential pitfalls in mind.

So, what difficulties might co-borrowers face:

1. Since loan agreements that involve a joint borrower are long-term, you need to be prepared for any difficulties: job changes, relocation, illness, salary reduction, etc. Any such cases, unless they are insured events, do not relieve you of the obligation to make loan payments.
2. Since the co-borrower bears the same responsibility to the bank, their debt load will be taken into account when applying for subsequent loans, which may be a reason for loan denial.
3. Defaults by the borrower will inevitably lead to a deterioration of the co-borrower's credit history.
4. A joint borrower cannot unilaterally renounce their obligations to the bank.

Answering frequent questions

In conclusion, we will answer the most frequently asked questions about joint and several liability.

Who acts as a co-borrower on a loan?

Any person can be chosen as a joint borrower. In practice, however, close relatives most often act in this role: parents, spouses, adult children, brothers, or sisters. Friends and colleagues are much less common. Essentially, it does not matter to the bank what relationship the borrowers have. It only matters that both are solvent and officially employed.

Does the bank check income if a spouse acts as a co-borrower?

No, according to the Family Code, any property acquired during marriage is jointly owned, so the second spouse automatically becomes a joint borrower regardless of their income level or even the presence of income.

If the co-borrower refuses to pay the debt, will it affect their credit history?

Yes, the co-borrower bears the same responsibility to the bank as the primary borrower. Therefore, in the event of loan default, it will affect the credit histories of both parties.

Can I become a co-borrower if I already have two loans?

In all likelihood, the bank will deny you the right to become a joint borrower, since when approving a loan, the lender primarily assesses the borrowers' debt load.

Can the borrower claim ownership of property purchased with a loan?

No, the borrower and co-borrower equally own the collateralized property, unless otherwise provided by an additional agreement (for example, a prenuptial agreement).

A person who agrees to become a co-borrower takes on a great responsibility and enormous risk. Taking this step, you need to know that after signing the agreement, the bank has the right to demand full repayment of the debt from you, regardless of whether you currently have the ability to do so or not.